Labels: Phillip Bennett, Refco

Labels: Joseph Collins, Phillip Bennett, Refco, Robert Trosten, Santo Maggio, Tone Grant

Labels: Bernstein Litowitz and Berger, class action, Phillip Bennett, Refco

Refco was the subject of 142 regulatory actions, the most of any futures trading outfit, according to a Bloomberg News analysis. The Commodity Futures Trading Commission came after it repeatedly, in some of its most prominent administrative cases of the 1980s and 1990s.

Fellow trading executives say Refco flouted industry standards like no other firm, tossing aside the rulebooks, taking on the diciest accounts and fighting back against regulators that tried to intervene.

Refco traces its origins to a one-time poultry wholesaler who served time in prison for selling substandard chickens to the military. Ray Friedman eventually won a pardon and with his stepson, Thomas Dittmer, opened the forerunner of Refco around 1969.

Labels: Fraud, indictment, money laundering, Phillip Bennett, Refco, Tone Grant

Labels: Phillip Bennett, Refco

Refco Bidder Alaron Has Been Ruled Out of Auction, CEO Says

Ann Saphir
November 9, 2005
Bloomberg

Alaron Trading Corp., one of five bidders to buy assets of bankrupt futures broker Refco Inc., has been ruled out of a bankruptcy auction, Chief Executive Steven Greenberg said in an interview today.

``The bottom line is we're not going to be able to bid,'' said Greenberg. ``We're disappointed.'' Alaron Managing Partner Gary Weber said in an interview that the auction was ``shrouded in mystery.''

Refco is selling assets after filing the 14th-largest bankruptcy in U.S. history following disclosure that former Chief Executive Officer Phillip Bennett hid $430 million of debt.

Labels: Phillip Bennett, Refco

Refco gets 5 bids for some operations

The Associated Press
November 7, 2005

NEW YORK -- Refco Inc., the troubled commodity-brokerage firm, Monday said it received five bids for its U.S., Europe and Asia operations. Friday, after the financial markets closed, Refco said it would not disclose the names of the bidders or any terms.

However, Man Group PLC of Britain said Monday that Man Financial, its brokerage business, has submitted a bid for parts of Refco, which filed for bankruptcy last month amid a scandal involving its former chief executive.

New York-based Refco said it is "extremely pleased" with the number and quality of the bids received and said it will notify qualified bidders by Monday at 5 p.m. The company also said an auction will be held Nov. 9 and the winning bid is expected to be presented to the court at a hearing Nov. 10. Bids for Refco's regulated commodities and futures arm were due Friday at 4 p.m.

The largest known bid was from Refco competitor Interactive Brokers Group LLC, which had offered $858 million. An $828 million rival bid was also expected from a Delaware corporation formed by the Dubai Investment Group and Yucaipa. Original bidder JC Flowers & Co. had dropped its $768 million offer after a U.S. bankruptcy court reduced the deal's break-up fee.

Refco and 23 affiliates filed for bankruptcy protection Oct. 17, after its former chief executive Phillip Bennett was charged with covering up a $430 million debt to the company.

Labels: Phillip Bennett, Refco

PwC dragged into Refco controversy - Big Four firm's US arm advised futures brokerage on financial reporting ahead of collapse

Nicholas Neveling
Accountancy Age
Nov 7, 2005

PwC's US arm has been dragged into the controversy surrounding collapsed futures brokerage Refco after it emerged that the Big Four firm advised it about financial reporting when it changed from a private to public company.

According to the Financial Times PwC advised Refco on accounting issues and preparing more detailed financial statements. Prosecutors and regulators have not spoken to PwC, but Refco's other advisers, including auditors Grant Thornton, are facing shareholder lawsuits.

The FT reports that PwC was appointed in April last year to advise Refco on $600m (£343.2m) debt offering as part of a deal that saw private equity group Thomas H Lee pay $450m for a majority stake in Refco.

PwC is believed to have had one partner and three staff working for Refco. They advised the group on financial reporting and SEC filing requirements for public companies. Refco collapsed last month when CEO Phillip Bennett allegedly used a hedge fund to conceal a $430m debt from investors.

Labels: Grant Thornton, Phillip Bennett, Refco

Man Group in Refco talks

November 1, 2005
Sharecast

Man Group’s brokerage arm admitted today that it has agreed a confidentiality agreement, allowing it access to Refco's financial data. The agreement marks a key step for the Man Financial in agreeing a deal to buy all or parts of the bankrupt company.

Man said it was entering a non disclosure agreement with Refco, which plunged into bankruptcy last month amid a financial scandal after charges were levelled against its former CEO Phillip Bennett.

The fund manager is the latest suitor to access Refco's financial data, which it will use to consider submitting a formal bid, following Interactive Brokers Group last week while TradeLink is also thought to be interested.

Others also thought to be mulling a potential offer are a group consisting of Merrill Lynch, private equity firm Warburg and Susquehanna.

Bids for Refco are due on November 4.

Labels: Phillip Bennett, Refco

Refco debacle widens and now involves Austrian bank

By : Joe Lauria in New York
October 30, 2005
The Business, Online

AUSTRIAN bank BAWAG is set to file lawsuits against Refco, as the widening scandal involving the US futures trader has prompted a former Refco executive to co-operate with US authorities trying to get to the bottom of the affair.

Austrian regulators last week also launched an investigation into the Refco debacle and expect to release a first report in a fortnight on BAWAG’s role in the accounting scandal. BAWAG is Austria’s fourth-largest bank. It was listed as Refco’s biggest creditor in papers filed by Refco in the US bankruptcy court this month. BAWAG is owed E350m ($424m, £238m) by Refco’s former chief executive, Briton Phillip Bennet, as well as E75m by Refco itself.

BAWAG, owned by Austria’s trade unions, is working with a battery of US?lawyers preparing the lawsuits against several targets, the bank said. The main target is Bennett, to whom BAWAG continued to lend money until 9 October, the day he was suspended by Refco. The next day he was arrested and charged with securities fraud and hiding $430m in debt from the company and its shareholders...

...The US probe was given a boost last week when Santo Maggio, president of the Refco Capital Markets unit, agreed to co-operate with the Justice Department and the Securities and Exchange Commission (SEC). Maggio had been put on leave by the Refco board on 10 October, the same day Bennett was arrested. As a Refco insider, Maggio’s participation is expected to help investigators pressure other executives to co-operate as they build their case. A judge last week gave prosecutors only until Monday to get an indictment against Bennet from a Grand Jury. The deadline could be extended.The US investigators have broadened their probe beyond the original charges against Bennett for hiding debt. They are also looking into the connections between Bennett and BAWAG. The SEC is also probing the role played by Grant Thornton, the accounting firm, which had audited Refco’s books. The investment banks that underwrote Refco’s $583m initial public offering (IPO) in August are also under investigation...

Labels: Department of Justice, Grant Thornton, Phillip Bennett, Refco

Refco executive Maggio cooperating in widening inquiry

October 28, 2005
By Kevin Drawbaugh
Reuters, UK

A senior Refco executive who was put on leave earlier this month is cooperating with U.S. authorities in a widening fraud investigation of the futures and commodities broker, a person close to the case said on Thursday.

Santo Maggio, president of the Refco Capital Markets unit, was put on leave by the Refco board on October 10 when it ousted chief executive Phillip Bennett, who has been arrested and charged with hiding $430 million (241 million pounds) of debt from the company and its shareholders.

The Department of Justice and the Securities and Exchange Commission are investigating the matter and are fast moving beyond the charges brought against Bennett in his arrest warrant, said sources familiar with the matter...

...Maggio's agreement to cooperate will allow federal investigators to follow a typical pattern of obtaining information from a cooperating executive that can then be used to pressure other executives and build a case, lawyers said.

The original article appears here.

-- MDT

Labels: Department of Justice, Phillip Bennett, Refco

Labels: Phillip Bennett, Refco

Angry creditors chase missing $1bn given to Refco insiders

Joe Lauria - in New York
October 23, 2005
The Business

THE scandal surrounding Refco, the world’s largest publicly-traded hedge fund, continued to mushroom last week after it was revealed that company insiders pocketed more than $1bn (£560m, E830m) from the firm in the year before declaring what was the fourth largest bankruptcy in US history.

As the multi-pronged government probe widened, competition to buy Refco assets not under bankruptcy protection also intensified. The value of these assets has plunged 45% from $7.5bn to $4.1bn since the scandal erupted.

Hours after declaring bankruptcy last Sunday, Refco signed a tentative agreement to sell its regulated futures brokerage unit to a group of investors led by J. Christopher Flowers, a former Goldman Sachs executive. But on Thursday Interactive Brokers Group, America’s largest independent broker-dealer, topped Flowers with an offer of $768m for the futures unit.

Dubai Investments, the Middle East state’s investment arm, is pushing to buy the entire bankrupt company for $1bn. Calyon Financial, a Refco rival, is also joining the fray. Within days of refco’s bankruptcy dozens of investors, creditors and their attorneys flew to New York to stake their claims in bankruptcy court.

More than 40% of Refco clients have pulled their money out of its regulated futures-trading unit. Refco went public only last August in an initial public offering managed by Goldman Sachs. Refco had been in business for decades before going public, trading foreign currency, US treasuries and commodities, last year for 200,000 clients. Many will now almost certainly take legal action against the company.

It emerged that when Robert Trosten left his post as chief financial officer a year ago he received $45m, according to testimony earlier this year at an arbitration hearing.

Former chairman Phillip Bennett appears to have received $700m from proceeds the company gained from sale of assets to Thomas Lee Partners last year. British-born Bennett was arrested and charged with securities fraud by federal authorities on 12 October. He faces up to 20 years in jail and is being held on $50m bail. Bennett is accused of hiding $430m in debt.

The next day, Refco temporarily shut down Refco Capital Markets, an important unit, because liquidity dried up. Trading was stopped on the New York Stock Exchange at $7.90 a share and Refco’s bonds plunged.

Last Monday, Refco agreed to sell its regulated futures brokerage business to Flowers for $770m in cash or an option to retain a 20% in the company.

On Tuesday, Hubert Gorbach, Austria’s vice-chancellor, asked the central bank to open an investigation into Bawag, an Austrian bank with ties to Bennett. Bawag is listed as Refco’s top creditor in the bankruptcy filing, claiming $451.2m.

Bawag said on Thursday it tried to stop a E350m loan payment to Bennett on 10 October after seeing reports about Refco. But it was too late. Bennett used the Bawag loan to repay some of the debt he owed Refco. He offered Bawag his 34% stake in the company as collateral.

Labels: Phillip Bennett, Refco

Grant Thornton facing huge claims over Refco collapse

By Katherine Griffiths in New York
October 19, 2005
The Independent

Grant Thornton, the international accountancy firm which audited the scandal-ridden futures trader Refco, defended its reputation yesterday in the face of possible multimillion-dollar claims from investors hit by the dramatic collapse of the firm.

Edward Nusbaum, the chief executive of Grant Thornton, admitted that the company would be sued for its involvement in signing off Refco's accounts when it floated on the New York Stock Exchange in August. But he insisted the firm had been misled, just as Refco shareholders had been, by the company's former management.

Refco filed for bankruptcy for two parts of its business yesterday and tentatively agreed to a fire sale of a third part, which trades financial futures, to a consortium led by the private investment group JC Flowers for $768m (£439m). JC Flowers, which is run by Christopher Flowers, a former Goldman Sachs banker, must get the deal approved by a Manhattan bankruptcy court.

The move marks an extraordinarily swift demise for Refco, which revealed last Monday that its chief executive and chairman, Phillip Bennett, was departing after the brokerage found he had covered up millions of dollars of bad debts. Mr Bennett was arrested the following day on criminal charges that he misled investors about the true state of Refco's finances at the time of its flotation.

Grant Thornton took over as Refco's auditor from the defunct accounting giant Arthur Andersen. The firm, as well as Refco's banking underwriters Goldman Sachs, Credit Suisse First Boston and Banc of America Securities, are likely to be the focus of lawsuits brought by shareholders whose investments may be entirely wiped out by the revelations of alleged fraud.

Mr Nusbaum said: "If we had known about the situation before, we would have conducted an investigation and made the implications [known] as it related to the financial statements. Everything we have seen so far indicates we complied with professional standards. Certainly we will be sued. There will be significant legal costs. We believe the cost will be absorbed by the firm."

Lawsuits are being prepared against various parties involved with Refco by heavyweight law firms such as Milberg Weiss and Lerach Coughlin.

In its defence, Grant Thornton will be able to say that it reported two serious deficiencies in Refco's internal financial controls, which were included in the company's IPO prospectus. The auditor noted at the time that there was a shortage of people to prepare Refco's financial statements and a lack of formalised procedures for closing the company's books.

Refco is the latest corporate scandal to engulf Grant Thornton. The Chicago-based firm was also the auditor of Parmalat, which collapsed after an accounting fraud. In the Refco case, the role of Goldman is also being scrutinised because of the number of relationships it has to parties involved in the rapidly evolving situation. As well as being an underwriter in the float, Goldman was hired last week to offer crisis management advice to Refco. Mr Flowers, who emerged as a buyer for Refco's futures arm over the weekend, was a partner at the bank. He has hired Matt Winkelman, formerly joint head of Goldman Sachs fixed-income division, as the new chairman of the futures business.

Mr Flowers said: "I left Goldman Sachs a long time ago and no longer have any association with it." He added that his consortium has an option to buy the rest of Refco. A possible deal will depend on how the Manhattan bankruptcy court divides the company's assets among creditors and investors.

Grant Thornton, the international accountancy firm which audited the scandal-ridden futures trader Refco, defended its reputation yesterday in the face of possible multimillion-dollar claims from investors hit by the dramatic collapse of the firm.

Edward Nusbaum, the chief executive of Grant Thornton, admitted that the company would be sued for its involvement in signing off Refco's accounts when it floated on the New York Stock Exchange in August. But he insisted the firm had been misled, just as Refco shareholders had been, by the company's former management.

Refco filed for bankruptcy for two parts of its business yesterday and tentatively agreed to a fire sale of a third part, which trades financial futures, to a consortium led by the private investment group JC Flowers for $768m (£439m). JC Flowers, which is run by Christopher Flowers, a former Goldman Sachs banker, must get the deal approved by a Manhattan bankruptcy court.

The move marks an extraordinarily swift demise for Refco, which revealed last Monday that its chief executive and chairman, Phillip Bennett, was departing after the brokerage found he had covered up millions of dollars of bad debts. Mr Bennett was arrested the following day on criminal charges that he misled investors about the true state of Refco's finances at the time of its flotation.

Grant Thornton took over as Refco's auditor from the defunct accounting giant Arthur Andersen. The firm, as well as Refco's banking underwriters Goldman Sachs, Credit Suisse First Boston and Banc of America Securities, are likely to be the focus of lawsuits brought by shareholders whose investments may be entirely wiped out by the revelations of alleged fraud.

Mr Nusbaum said: "If we had known about the situation before, we would have conducted an investigation and made the implications [known] as it related to the financial statements. Everything we have seen so far indicates we complied with professional standards. Certainly we will be sued. There will be significant legal costs. We believe the cost will be absorbed by the firm."

Lawsuits are being prepared against various parties involved with Refco by heavyweight law firms such as Milberg Weiss and Lerach Coughlin.

In its defence, Grant Thornton will be able to say that it reported two serious deficiencies in Refco's internal financial controls, which were included in the company's IPO prospectus. The auditor noted at the time that there was a shortage of people to prepare Refco's financial statements and a lack of formalised procedures for closing the company's books.

Refco is the latest corporate scandal to engulf Grant Thornton. The Chicago-based firm was also the auditor of Parmalat, which collapsed after an accounting fraud. In the Refco case, the role of Goldman is also being scrutinised because of the number of relationships it has to parties involved in the rapidly evolving situation. As well as being an underwriter in the float, Goldman was hired last week to offer crisis management advice to Refco. Mr Flowers, who emerged as a buyer for Refco's futures arm over the weekend, was a partner at the bank. He has hired Matt Winkelman, formerly joint head of Goldman Sachs fixed-income division, as the new chairman of the futures business.

Mr Flowers said: "I left Goldman Sachs a long time ago and no longer have any association with it." He added that his consortium has an option to buy the rest of Refco. A possible deal will depend on how the Manhattan bankruptcy court divides the company's assets among creditors and investors.

Labels: Grant Thornton, Parmalat, Phillip Bennett, Refco

Lee could face suits over role in scandal-plagued Refco's IPO

By Steven Syre
Globe Columnist
October 18, 2005

The accounting scandal at futures brokerage Refco Inc. has clobbered lots of investors, none more so than the Thomas H. Lee Co. and its private-equity clients. Here's the simple math for the Lee funds that own 38 percent of the company: Their 48.9 million Refco shares were worth $28.56 each on Oct. 7, just before news of the company's fiasco developed. Those shares last traded five days ago at $7.90. That works out to a decline of just about $1 billion.

But Lee has another Refco stock problem, one with implications that aren't so easy to pencil out. What about the $170 million of Refco stock that Lee funds sold into the market as part of the company's larger initial public offering over the summer? Refco's financial statements, included in documents supporting that IPO, are now disowned by the company itself.

That potential liability won't turn out to be anything like $170 million and does not come close to qualifying as Lee's biggest Refco headache. But it's still a big-ticket issue and poses legal questions that are extremely rare in the world of private equity.

Refco was considered one of Lee's great investing triumphs as recently as two weeks ago. The firm's funds had invested $507 million in Refco to buy a controlling interest in the business just a year ago. The shares Lee sold in the IPO, added to the increased value of the stock it continued to hold, amounted to a fast 200 percent return.

Fortunes changed quickly when Refco discovered a $430 million debt to the company was owed by an entity connected to its chief executive, Phillip Bennett, a fact that appeared to have been obscured by briefly shifting the obligation to a hedge fund client on several timely occasions.

Bennett was suspended and soon charged with securities fraud. He paid back the entire debt a week ago, but Refco warned investors they could not rely on company financial statements dating back three years. Refco shares went into a free fall as the accounting scandal unfolded.

The Refco story has been a gift to securities class-action lawyers, who are sure to press fraud and other claims against Refco and any available deep pocket. Among the likely lawsuits: claims for rescission from owners of Refco shares.

Rescission in the Refco case would require sellers of IPO shares take back the stock at a price identical to that of the initial offering, $22 per share, or nearly three times its most recent trading price.

Investors who bought their shares at the IPO or very soon after the offering -- and continue to hold them -- would have a very strong case for rescission, assuming the company financial statements backing the stock sale turn out to be fraudulent, according to attorneys who specialize in securities law and have no connection to the Refco case.

Those investors would not have to prove that Lee representatives, including four who sat on the Refco board, were aware of the fraudulent financial statements to demand that Lee funds take back the shares they sold into the IPO, the lawyers said.

Here's the catch: How many shareholders really qualify under those standards? The group of investors who bought IPO stock and still own it may be small enough to fit into a phone booth. Refco sold 26.5 million shares in its IPO. Nearly 80 million Refco shares changed hands last week alone.

Investors who have recently purchased Refco stock in the open market could sue the Lee funds as IPO sellers and seek damages. But the securities lawyers said those investors would be required to meet much higher legal standards, and their odds for success would be very remote.

Regardless of Lee's eventual exposure, no private-equity firm wants to be tied up in lawsuits challenging the honesty of an IPO in which it was directly involved. Public stock offerings are a key strategy that private-equity firms use to sell out of investments and return cash to their investors.

Despite the Refco meltdown, Lee funds have produced spectacular returns for investors. Lee funds have returned $6 billion in cash to investors over the past two years and the prime fund that put its money into Refco, Thomas H. Lee Equity Fund V, is generating annual returns over 30 percent, even if that one bad investment is written down to be considered worthless. That fund ranks among the top 10 percent of comparable private-equity portfolios.

The Refco punch hasn't decked Lee's performance. But the headlines this month and the claims in lawsuits to follow leave bruises just the same.

Labels: Phillip Bennett, Refco

"Marino, interviewed Monday outside of Liberty Corner's offices in Summit, N.J., says his client was a prime brokerage customer of Refco and never had any direct dealings with Bennett. His client did not know that Refco Group was a separate company owned by Bennett. In fact, Marino says his client voluntarily called the office of U.S. Attorney Michael Garcia after seeing Liberty Corner's name mentioned in a story last Wednesday in The Wall Street Journal...

...A Mayer Brown spokeswoman, Sheila Turner, described the firm's role in the IPO as limited. Regarding the loans, Turner said Mayer Brown is still gathering information on the matter. "Based on our investigation to date, it appears that lawyers in our firm from time to time documented loans for Refco, and some of these loans appear to have been loans involving Liberty Corner Capital that have now been called into question," Turner said. "At this point in time, we are unable to provide further information..."

...Not everyone is buying Liberty Corner's version of the events. One Wall Street analyst, who didn't want to be identified, says the transaction looks suspicious on its face. Even if Liberty Corner didn't know Bennett controlled Refco Group, the movement of so much cash between two similarly named entities should have set off alarm bells. In fact, investors in the August IPO were on notice that Refco had done at least one prior transaction with Bennett's Refco Group...

For further details on the tangled Refco web, check out the full article at TheStreet.com.

-- MDT

Labels: Phillip Bennett, Refco

Bennett's hidden life and frailties of Man

Conal Walsh
Sunday October 16, 2005
The Observer

Events of the past fortnight may have given rueful satisfaction to those who believe the hedge fund industry is an accident waiting to happen. America's Securities and Exchange Commission is probing claims that Man Group helped a client hide $175 million of losses. Separately, and much more seriously, Wall Street kingpin Phillip Bennett is facing fraud charges after allegedly hiding up to $540m in bad debts from investors...

...The demise of such a prominent firm would be a tremendous blow to market sentiment in itself, but others in the industry are already suffering. Refco, which acts as a middleman and counterparty on a host of transactions, has also been forced to freeze customer accounts at its capital markets unit, closing down billions of dollars' worth of deals and potentially threatening instability within the wider hedge fund market.

Even assuming a systemic crisis is averted, the affair could tarnish some august Wall Street reputations. News of the debts has taken Refco itself by surprise, and no mention of them was made when Refco floated just two months ago, raising $583m. There is a likelihood of lawsuits from aggrieved investors against Goldman Sachs, CSFB, and others who advised on the float. Investment banks that arranged Refco's bond issues could also face legal action...

Whatever the case, Bennett's alleged success in hiding the debts raises serious questions about how effectively the world of derivatives trading is being policed. Attention has been drawn to some of the potential risks highlighted in Refco's flotation prospectus, which seem all the more alarming with hindsight - they include 'our lack of formalised procedures for closing our books', and a warning that 'we could be harmed by employee ... misconduct or errors that are difficult to detect and deter'.

The hedge fund industry shrinks from any whiff of scandal - mindful, perhaps, of an epidemic of negative sentiment such as the doomsayers have long predicted. Shares in Man Group, as well as other hedge fund companies, fell last week as Bennett's entirely unconnected troubles started to mount...

Labels: Phillip Bennett, Refco

Labels: Grant Thornton, Parmalat, Phillip Bennett, Refco

Labels: Phillip Bennett, Refco